Foreign steel companies are crying foul, alleging that conditions for privatizing Ukraine's largest steel mill favor a bid backed by President Leonid Kuchma's son in law Viktor Pinchuk and Donetsk tycoon Rinat Akhmetov.
The State Property Fund put 93 percent of Kryvorizhstal on sale May 12, and required that bidders prove they produced more than a million tons of coke, essential to steel production, in Ukraine every year since 2001. That would freeze out foreign bidders for one of Ukraine’s most valued assets, and favor a small group of Ukrainian moguls with connections in domestic steel. The sale will be Ukraine’s largest-ever privatization.
Companies affiliated with Pinchuk and Akhmetov have established a consortium analysts believe is intended to bid for Kryvorizhstal, which the SPF has priced at Hr. 3.8 million, less than the Hr. 5 billion foreign firms like India’s Tata Steel have said they would pay.
The Dnipropetrovsk-based consortium, Investment-Metallurgy Union, includes Azovstal and Markokhim coke plant, controlled by Akhmetov’s holding company System Capital Management (SKM), and Pinchuk’s Interpipe Corporation. Other members include Adiyivsky Coke Plant, owned by a company called ARS, which analysts call a loyal partner of SKM.
“You could say the conditions were written to fit the Akhmetov-Pinchuk bid but it is hard to prove this,” said Stepan Selivyorstov, an analyst at Prometal, a steel industry consultancy.
He said it is “theoretically” possible for foreign steel interests of participate if they “partner up with a Ukrainian group that fulfills the requirements.”
There are only a limited group of Ukrainian companies who meet the coke requirements, Selivyorstov said.
“They include the Akhmetov-Pinchuk group, the Privatbank group, and the Donbas Industrial Union.”
A lack of transparency in the Ukrainian steel industry has in the past kept foreign steel out of the country, which ranks 7th in global steel production.
Legal tender
“Legally, the SPF has a right to formulate such conditions by taking national interests into consideration,” Selivyorstov added. Ukrainian steel has less money at its disposal, he said, and has trouble competing internationally.
The tender condition has already elicited protest from Russia’s Severstal and Luxembourg-based Arcelor, the world’s largest steel group, which had planned to bid together for the mill.
Severstal has threatened to sue Ukraine for imposing the coke-production condition.
“None of the foreign investors [interested in the tender] meets this condition. We consider this situation discriminatory,” Vadim Makhov, deputy CEO of Severstal Group, told Russian newspaper Vedomosti.
Makhov said the condition could be challenged in court as a breach of a bilateral agreement between the United States and Ukraine on protecting investments. Severstal and Arcelor will still submit a joint bid, he added.
Arcelor did not respond to inquiries by the Post.
India’s Tata Steel, the other foreign steel group that has expressed a desire for Kryvorizhstal, declined comment.
Oppositionist political groups have in recent days demanded the tender be halted. Selivyorstov said the tender could be stalled by a lawsuit filed by one of the bidders.
Any current or former employee of the plant who maintains that the process violates his interests could also file a suit, and employees could thus be used by opposition politicians, or those keen to make a populist gesture.
“There have been precedents of this kind,” he said. “It’s hard to predict what will happen.”
The mill, which produces about 20 percent of Ukraine’s metal output, last year posted profits of $302 million, and produced about 6 million tons of rolled steel, 7 million tons of steel, and 7.8 million tons of pig iron.
SPF spokesperson Nadia Zalepa said bids will be accepted until June 7 and the sale will take place on June 14.
